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Monday, March 21, 2011

Used House or Used Lexus

Coming this Summer:  Lord of the Rings: The Two Towers

Wait a minute... that is the #1 movie in 2002. 

Silly me... Existing home prices are the same now as they were in 2002-- About $156K-- Same as April 2002.  I guess I was expecting a blast to the past...

Gas was $1.61 a gallon in 2002 and gold averaged $310 an ounce.  The S&P 500 played with 850-1150ish

Used houses were worth about $156K.

Today Gas is $3.50ish a gallon, gold is about $1400 and the S&P 500 is at about 1300.

Used houses are worth about $156K.

I guess that is about all that needs said about houses.  Expect prices to plunge further as rates rise and foreclosures flood the market.  This is coupled with no credit expansion for mortgages and no wage growth for Americans. 

I wonder which was a better investment in 2002-- house or Lexus?

The house is the same value today as it was in 2002... no loss, but no gain-- other than the 9 years of mortgage payments, taxes, insurance and maintenance.  A loan at 100% financing would run you about $1150 a month (for principle and interest) and you would owe about $138,000 today based on 30 year amortization.  Principle and interest out of pocket would be $124,200 over 9 years

If you bought a 2002 Lexus Rx300 you would spend about $36,000.  If you took a regular 5 year car loan you would have a payment of about $700 fiat dollars.  This car would cost you about $42,000 if paid over the entire term but it would be paid off in 2007. 

The Lexus would run for about 200,000 miles no problem, meaning that with regular driving of 15,000 miles you would have the car for another 4 years (of course no one does this with a car, but let's just say you are one of those people that drives a car forever). 

And today the Lexus is worth...  $11,195

Of course this is a stupid comparison at best-- it is just pointing out the state of the real estate market.   

Today potential buyers are thinking about ridiculous arguments like the one I just presented--  Do I buy a nice new car or dream vacation, or a new house?

Housing has no confidence right now and I understand why!  Prices have collapsed in the last few years, foreclosures continue to mount and so many people have had a real estate horror story via MERS disaster or modification musical chairs.  Housing will not recover until there is confidence in the market.  Potential new buyers will look at alternatives to where to put their money-- cars, stocks, vacations, land... the competition is endless.

And the housing market has some tough competition... The new Lexus RX 450h is a sick ride.    

Are you looking to buy a house in 2011?


  1. I just can't see housing falling that much further from here. As you say, everything else has inflated (Gold, S&P, cars, food, etc.), so it's not consistent that housing has not participated in this inflation.

    At some point, the realization will come that hard-assets are important again, and with costs of ownership back below rental pricing in many markets, it makes sense for that hard asset to be a house.

    I'm not saying that everyone should buy a house, or even that housing is a good investment, but that in the inflationary environment yet to come, housing will be a decent place to put your money. 10 years from now, the markets could be higher or lower, gold could be higher or lower, but I'd be shocked if house prices were not at least modestly higher.

  2. in the next crash(with mainstreet hanging on by fingernails it will be the big one) housing goes even lower.....wayyy lower.

    geeez, maybe the mayan calender does know something.